DBRS Morningstar Finalises Provisional Rating on FCT Crédit Agricole Habitat 2020

DBRS Ratings Limited (DBRS Morningstar) finalised its provisional rating of AAA (sf) on the Class A Notes issued by FCT Crédit Agricole Habitat 2020 (the Issuer). The Issuer is established as a Fonds Commun de Titrisation (FCT), governed by French regulations.

At the FCT issue date, the Issuer used the proceeds of the Class A Notes, Class B Notes, and Residual Units to purchase a portfolio of home loans from the sellers. The transaction has have a five-year revolving period, during which time the sellers may sell additional home loans to the Issuer subject to amortisation events. After the five-year period ending in January 2025, the notes will be repaid if the Caisses Régionales agree to repurchase the loans at a price allowing for the full repayment of the notes.

Home loans in the portfolio are secured by either a mortgage over the relevant property, a CAMCA Assurance S.A. guarantee, or a Crédit Logement guarantee. The sellers of the home loans are the 39 regional banks of Caisses Régionales de Crédit Agricole. Each seller is also the servicer of its respective portfolio, and contributes an amount to fund the liquidity reserve account at closing equal to the contribution ratio, calculated as a percentage of the total initial amount of Class A and Class B notes at the issue date, multiplied by the liquidity reserve required deposit.

The Class A Notes benefit from 13.5% credit enhancement, which consists of subordination of the Class B Notes. Additionally, the Class A Notes will benefit from a non-amortising liquidity reserve, which was funded at the issue date to an amount equal to 0.8% of the initial amount of the Class A and Class B notes. The non-amortising liquidity reserve will be available to cover senior expenses and fees, swap net cash flow, and Class A interest.

Additionally, the transaction benefits from a EUR 200,000 cost reserve funded at closing, which the Issuer will use to pay Issuer expenses due to the Account Bank.

Up to and including the January 2025 payment date, the Class A Notes will pay a floating coupon rate of three-month Euribor + 0.75% floored at 0%. Following January 2025 payment date, the Class A Notes will step up to pay a coupon equal to three-month Euribor + 1.20%, floored at 0%. The Class B Notes will bear a fixed coupon during the life of the transaction of 0.45%. Both the Class A and Class B notes will pay interest on a quarterly basis. The loans in the pool pay mostly a fixed-for-life interest rate, whereas the Class A Notes pay a floating-rate coupon. This generates an interest rate mismatch, which is covered by the swap agreement in place with Crédit Agricole Corporate & Investment Bank (CA-CIB). DBRS Morningstar privately rates CA-CIB, and the rating is in line with DBRS Morningstar Derivative Criteria requirements for the Swap Counterparty rating.

As of 30 December 2019, the portfolio consisted of 15,783 loans granted to 15,356 borrowers. The total balance of the portfolio amounted to EUR 2.05 billion. The average loan per borrower was EUR 133,195. The weighted-average (WA) seasoning of the portfolio was 4.0 years with a WA remaining term of 18.3 years. The WA indexed loan-to-value of the portfolio was 76.2%. There were no buy-to-let loans in the portfolio. The majority of the loans (99.1% of the loan balance) were fixed-for-life loans. There were no interest-only loans. Approximately 19.8% of the borrowers are self-employed. DBRS Morningstar was not provided with debt-to-income (DTI) information. The Eligibility Criteria, however, has restricted the maximum DTI of loans benefitting from a guarantee from CAMCA or Crédit Logement to 33% when the home loan has been granted.

Crédit Agricole S.A. (CASA) acts as the Account Bank and the Specially Dedicated Account Bank for the transaction. DBRS Morningstar’s CASA’s Critical Obligation Rating is currently AA (high), which complies with the threshold for the Account Bank, given the provisional rating assigned to the Class A Notes. Additionally, the transaction documents include downgrade trigger language should CASA be downgraded below the threshold. The transaction documents also include a commingling trigger event, which references CASA’s rating if the servicers are part of the Crédit Agricole Group.

The AAA (sf) rating addresses the timely payment of interest and the Issuer’s obligation to repay principal on the Class A Notes by the legal final maturity date in July 2055. DBRS Morningstar does not rate the Class B Notes.

DBRS Morningstar based its rating primarily on the following analytical considerations:
-- The transaction capital structure, including the form and sufficiency of available credit enhancement and liquidity provisions.
--The worst-case portfolio, which is based on the portfolio characteristic thresholds defined in the global portfolio triggers document, was used with the European RMBS Credit Model to estimate the probability of default (PD), loss given default (LGD), and expected loss for each rating scenario.
--The structural mitigants in place to avoid potential payment disruptions caused by operational risk, such as downgrade and replacement language in the transaction documents and the liquidity reserve account.
-- The transaction’s ability to withstand stressed cash flow assumptions and repay investors in accordance with the terms and conditions of the notes.
-- The consistency of the transaction’s legal structure with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology and the expectation of legal opinions addressing the assignment of the assets to the Issuer.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is “Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda.”

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology. An asset and a cash flow analysis were both conducted. Due to the inclusion of a revolving period in the transaction, the analysis is based on the worst-case replenishment criteria set forth in the transaction legal documents.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of information used for this rating include historical performance, default, recovery and prepayment data, and loan-level data provided by CASA.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with third-party assessments. The AUP report reported a few discrepancies in the property values reported in the data tape against the values recorded in the loan documentation. To account for this, DBRS Morningstar applied an haircut to some property values for the purposes of estimating the PD and LGD for the loans in the pool.

DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly rated financial instrument. This is the first rating action since the Initial Rating Date.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

In respect of the Class A Notes, the PD and LGD at the AAA (sf) stress scenario of 24.88% and 53.20%, respectively, were stressed assuming a 25% and 50% increase on both the PD and LGD.

DBRS Morningstar concludes the following impact on the Class A Notes:
-- 25% increase of the PD, ceteris paribus would lead to a downgrade to AA (high) (sf).
-- 50% increase of the PD, ceteris paribus would lead to a downgrade to AA (sf).
-- 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (high) (sf).
-- 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 25% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the PD and 25% increase of the LGD, ceteris paribus would lead to a downgrade to AA (low) (sf).
-- 25% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to AA (sf).
-- 50% increase of the PD and 50% increase of the LGD, ceteris paribus would lead to a downgrade to A (high) (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Alessandra Maggiora, Assistant Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 24 February 2020

DBRS Ratings Limited
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United Kingdom
Registered in England and Wales: No. 7139960

The rating methodologies used in the analysis of this transaction can be found at:
http://www.dbrs.com/about/methodologies.

-- Derivative Criteria for European Structured Finance Transactions
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators
-- Interest Rate Stresses for European Structured Finance Transactions
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.